World Bank downgrades growth prospects as Thai economic recovery in 2021 looks still uncertain
Thailand’s economic problems are coming into clear focus as projected growth rates for 2021 are already beginning to slide as in 2019 and 2020 despite rising exports and a weakening baht so far this year. The scale of the economic damage suffered last year due to the rapid shutdown of business concerns caused by the pandemic and the absence of the lucrative foreign tourism industry is being felt more severely as many ordinary Thais now struggle just to live from hand to mouth every week.
Thailand’s economic recovery in 2021 is, as yet, highly uncertain with doubts about how long it will take to see tourist arrival numbers in the millions being achieved through the kingdom’s international airports. This is amid growing concern about the state of finances of the less well off in the kingdom with skyrocketing household debt and reports that over 40% of Thais have resorted to borrowing from family members. It comes as the World Bank reduced the projected growth rate for the kingdom on Friday to 3.4% which is still ahead of the 3% projected by the National Economic and Social Development Council in February.
On Friday, the World Bank revised its projected growth figure for the Thai economy for 2021 down to 3.4% because of protracted doubts over the country’s ability to reopen to the lucrative foreign tourism market which, in 2019, generated over ฿2 trillion in net income for the kingdom which went directly into areas that have been hardest hit by the pandemic.
It cited worldwide problems as, globally, countries scramble to vaccinate populations with national controls on outward travel increasingly being imposed by governments as a factor limiting the industry.
This is hindering the ability of the international flight network to return to normal and prospects for a global recovery in tourism.
World Bank senior official says the economy will need government support in both 2021 and 2022
Kiatipong Ariyapruchya, the economist at the bank who monitors Thailand, suggested that the Thai economy may not return to normal until 2022 and would require government support both this year and next, to recover from a 6.1% contraction and continuing headwinds being felt in 2021.
Hopes pinned on rising exports and a recovery of the formerly lucrative foreign tourism market
Thailand is expected to make ground this year with rising exports bolstered by a weakening baht which, on Friday, was valued at ฿31.16 to the dollar.
However, the weakness in the country’s foreign tourism market and its overall impact on the economy domestically has taken even Thai planners by surprise in December, January and February as the country, for the first time, has had to get by without the inward flow of funds from foreign tourism.
Last year, Thailand enjoyed a healthy first quarter of foreign tourism income before the pandemic crisis hit recording nearly 6.6 million visitors.
Only 5,741 foreign tourists in February
This year, in January, only 7,694 foreign tourists entered Thailand under highly restrictive terms of entry representing a 99.8% drop while in February the figure was only 5,741 or a fall of 99.7%.
Mr Kiatipong, the World Bank economist says, nonetheless, the government has the room to support the economy but many in Thailand are concerned about rising public sector borrowing levels even though they are well below those seen in other countries.
Government can still support the economy but many are sensitive about rising levels of public debt
It is understood the government still has access to at least ฿500 billion in funds from a ฿1 trillion facility organised last year to deal with the downturn.
‘Fiscal policy remains key to shore up the economy this year and next,’ Mr Kiatipong pointed out.
The question is can the Thai government follow this prescription for the economy for the rest of 2021 and into 2022?
The kingdom ended last year with a public debt level of 57% of GDP with many top economists urging the government to borrow more to support the economy at this time.
This may mean, at some point, extending a legal limit that proscribes authorities from borrowing in excess of 60% of GDP.
This, however, is thought to be politically out of bounds.
Household debt at 90% of GDP
Many among the general public and political representatives are sensitive about such a course given the country’s experience in the 1997 Asian Financial Crash.
Another key headache for Thai economic planners is the massive level of household debt in the kingdom which has been exacerbated by the pandemic and which was projected to reach 90% of GDP by the end of 2020.
Prime Minister Prayut Chan ocha said he expects a 4% growth rate for the Thai economy for 2021
On Friday, Prime Minister Prayut Chan ocha told reporters that he expects the country’s economy to grow at 4% in 2021.
He used the opportunity to urge the public to spend more and for private firms to think about investment and growth.
A 4% gain for the year would have to come after a further contraction of the economy by 1.5% in January 2021 even with rising exports.
This would have to entail achieving figures for exports and foreign tourist arrivals ahead of expectations, at this point, given the extended economic emergency in the kingdom which has challenged both the public and private sector, large and small, according to business surveys and public opinion polls.
National Economic and Social Development Council predicted 3% growth based on 3.2 million visitors
In mid-February, the National Economic and Social Development Council and its Secretary-general, Danucha Pichayanan, predicted a 3% gain for this year based on 3.2 million visitors, a pickup in exports and government supports.
Finance minister Arkhom Termpittayapaisith grasps the extent of the problem and need to push for growth
It is known that the Finance Ministry is working behind the scenes to engineer a solid economic performance for 2021 with reports that Minister of Finance, Arkhom Termpittayapaisith, has grasped the significance of the contraction suffered last year and the damage done to both business and personal finances.
He is on record as stating that a weak growth figure in 2021 is not acceptable.
He was commenting, earlier in March, on a projected growth figure of 2.8% at the beginning of the month projected by the ministry itself.
‘That isn’t what we are happy about because the output gap is about 7%,’ he pointed out regarding the contraction that the kingdom has suffered since 2019.
Finance Ministry deputy spokesperson predicted 3.5% growth for 2021 based on 5 million tourist arrivals
At the end of February, a Finance Ministry deputy spokesman, Wuttipong Jittungsakul, said Thailand was still aiming for 5 million foreign tourists in 2021.
He suggested that with a rising tide in exports, this would see a baseline growth figure of 2.8%. This could be pushed up to 3.5% by gains in both exports and tourism, which at this point, looks like the government’s strategy.
Suan Dusit University lecturer points to 14 million Thais with a monthly income of less than ฿2,500
A lecturer at the Faculty of Management Science at Suan Dusit University, Dr Prasat Niyom, has pointed out in the last week, that currently in the kingdom there are 14 million welfare cardholders with an income of less than ฿2,500 per month.
The inequality in a country where nearly 87% of people have less than ฿50,000 in their bank accounts coupled with a massive casual sector or black economy, has meant that the closure to foreign tourism income which, at the end of March, will be going into its second year, has hit the poorest in the country the hardest.
Phuket Deputy Governor highlighted the same issue last Wednesday on the once-thriving tourist island
The situation was highlighted, on Wednesday, by Phuket’s Deputy Governor Pichet Panapong while successfully urging the acceptance of a plan to reopen the tourism island by July 1st to foreign tourists without quarantine.
The senior official pointed out that, by then, the island population of nearly 420,000 people would have a monthly income of less than ฿2,000 or below the Thai poverty line.
42% of Thais are borrowing from family members to get by during this unprecedented emergency
A survey by Suan Dusit conducted in the middle of March with a sample of over 1,150 people showed that over 55% of Thai people questioned were getting along by drawing from savings while over 42% told pollsters that they have been borrowing cash from family members.
In the poll, over 65% of people said they were worried about unemployment and a further deterioration in their income prospects.
The scale of the economic problem, since last year, appears to have gotten worse as economic conditions for many ordinary people in Thailand today means lower balances in their bank or savings accounts and deteriorating conditions to earn income.